MPC poll: RBI unlikely to cut rates on December 6, may revise inflation projection upwards

Reserve Bank of India

The Reserve Bank of India (RBI) is expected to keep policy rate unchanged for an eleventh time later this week due to higher-than-expected inflation numbers, Moneycontrol’s poll of 17 economists, bankers and fund managers has revealed.

This despite the economic growth in the September slowing to a seven-quarter low of 5.4 percent year on year, hampered by weaker expansions in manufacturing and consumption.

The bi-monthly monetary policy committee (MPC) meeting begins December 4 and the key decision on interest rate will be made known on December 6.

Most experts said the central bank may not change the stance in the December policy and retain it at “neutral’” One respondent, however, expected the bank to shift to “accommodative” from “neutral”.

“Accommodative since inflation going forward is expected to be in 4 percent range,” said Murthy Nagarajan, Head-Fixed Income, Tata Asset Management.

In October, the MPC kept the repo rate, the rate at which the RBI lends money to banks, unchanged at 6.5 percent but changed the stance to “neutral” from “withdrawal of accommodation”. The standing deposit facility (SDF) rate remained unchanged at 6.25 percent and the marginal standing facility (MSF) rate and the bank rate at 6.75 percent.

The RBI has now held the repo rate steady at 6.5 percent for 10 MPC meetings. The immediate focus is on bringing down inflation to the target or below it.

On the language front, the RBI is expected to maintain cautious approach, given the headwinds in the inflation.

“A vigilant/cautious approach will be observed given the spike in inflation and existing headwinds to inflation as well. The seasonal spillovers in vegetable prices will be a much-needed relief for consumers. Food inflation would need to correct and sustain at softer levels for headline inflation to drop below the 5 percent handle in 2HFY25,” said Achala Jethmalani, Economist at RBL Bank.

Most of the respondents were surveyed before the release of the September quarter GDP numbers.

Also read: Experts trim FY25 GDP target amid slowing consumption, lower capexInflation projections

Most economists and bankers said the RBI might revise its inflation projections upward in the policy due to higher prints of the past few months.

“We see upside risk to RBI’s FY25 CPI inflation estimate of 4.5 percent due to elevated food inflation. Full year estimate is tracking closer to 5 percent. Successive supply-side shocks have kept vegetable prices elevated. Uneven rainfall last year has kept cereal and pulses prices elevated this year. We do expect some upward revision in CPI estimate,” said Gaura Sengupta, economist at IDFC First Bank.

India’s retail inflation rose to a 14-month high of 6.2 percent in October from 5.5 percent in the previous month, as food inflation galloped on the back of rising vegetable prices.

Food inflation rose by double digits for the first time in 15 months to 10.9 percent from 9.2 percent in the previous month, data released by the government on November 12 showed.

In October, the MPC projected inflation for FY25 at 4.5 percent with Q2 at 4.1 percent, Q3 at 4.8 percent and Q4 at 4.2 percent. CPI inflation for FY26 Q1 is expected at 4.3 percent.

Also Read | Tale of two halves: GDP growth moderates in Q2, but early signs of rebound seen in second half

GDP growth

Experts also expect the central bank to revise its GDP growth numbers after a sluggish September quarter.

“GDP numbers is likely to be revised lower,” said Aditi Gupta, Economist at Bank of Baroda.

India’s GDP for the September quarter came in at 5.4 percent. In the previous quarter, the Indian economy grew at 6.7 percent and 8.1 percent in the year-ago period.